New York Lawmakers Take On The Cannabis Gray Market To Protect The State’s $4.2 Billion Industry – Forbes

Between Two Worlds: Unlicensed cannabis dispensaries now operate openly in New York, existing in a legal gray area before the state issues licenses.

Its never been difficult to buy weed in New York. Since the Empire State legalized cannabis last yearbut has yet to issue dispensary licensesa vibrant gray market has stepped out of the shadows and now dozens of unlicensed storefronts and mobile trucks have opened across the state, from Manhattan to Albany.

Technically speaking, New Yorks cannabis regulators consider any person or business selling, gifting or exchanging cannabis as unlicensed and illegal. The state is now actively trying to snuff out the gray market operators because they view it as a threat to the legal industry that should be up and running by the beginning of 2023.

There is also a lot at stake: New York is projected to become the nations second-largest legal cannabis market after California with an estimated $4.2 billion market within five years.

In early February, the New York State Office of Cannabis Management sent cease-and-desist letters to dozens of gray market operators across the state, threatening that if they dont shut down, they wont be eligible for a licenseand might be on the hook for criminal charges. These violators must stop their activity immediately, or face the consequences, Cannabis Control Board Chair Tremaine Wright said in a statement.

But most pot entrepreneurs havent heeded the warning and even more unlicensed shops have opened up. The cops arent conducting raids and the states prosecutors arent willing to go after these operators because there is enough of a gray area in the law to give the gray market legal cover. And now State Senator Diane Savino (D-Staten Island and Brooklyn) is setting out to take down the gray market with a new bill introduced last month that, if passed would explicitly make it illegal to sell, gift, transfer, or trade cannabis without a license.

They can dress themselves up and rent a storefront; it doesn't make them any different than the guy who delivers weed to your house.

Senate Bill 8511, which hasnt yet been put to a vote, would make operating an unlicensed dispensary a Class D felony. (In New York, penalties could range from probation to seven years jail time.) The bill would also ban entrepreneurs who sell or gift without a license from ever participating in the legal market. Savino says these kinds of shops are undermining the states efforts to launch a legal and regulated market, and that their inventive gifting and club models are not fooling anyone.

They can dress themselves up and rent a storefront; it doesn't make them any different than the guy who delivers weed to your house, Savino says. They should shut down and hope that they survive and are able to apply for a dispensary license.

Most of the unlicensed dispensaries in New York have not heeded warnings from regulators. Steve Zissou, a lawyer who represents the Elfand family, founders of the gray market dispensary Empire Cannabis Club with two locations in Manhattan, says his clients are abiding by the letter of the law because Empire Cannabis is a private club requiring membership fees to access cannabis products. When asked about Savinos bill, Zissou says he doesnt believe it will pass and adds that its proof his clients are operating legally.

I guess there are some legislators [who] want to continue the war on drugs, Zissou says. The Majority Leader of the United States Senate sponsored a law to remove marihuana from schedule 1 and legalize Cannabis. And New York State Senator Savino wants to declare war on marijuana?

State Senator Liz Kruger (D-Manhattan), who worked for seven years with Assemblywoman Crystal Peoples-Stokes (D-Buffalo) to introduce the Marijuana Regulation and Tax Act, which became law on March 31, 2021, says the gray market needs to be stubbed out. But, shes not 100% in agreement with Savinos approach.

It is pretty important that we get our arms around it and stop this from happening because it opens the door to more of an illegal market continuing, says Kruger. We will not accept an illegal market.

But Kruger says she does not want to set up new criminal penalties to tackle the problem. Im not big on arresting people for using marijuana and I'm not big on arresting people, even for selling marijuana, she says. Kruger prefers pressure over penalties and believes that competition from legal operators will take out the gray market so long as the state doesnt get greedy and tax the legal industry too much. She has a message to anyone currently operating an unlicensed business: This isn't legal, we're shutting you down, she says. You can try to keep doing it, but have no illusions, youre not the one who's going to get a license when the licenses are available.

Rolling With It: The dispensary truck known as Uncle Budd operates in New York City without a licensefor now.

In Albany, District Attorney P. David Soares has supported decriminalization and regulation for years. Soares says legalization in New York is long overdue but he thinks the state missed the mark by allowing New Yorkers to grow six plants at home, which will continue to fuel the illicit market. Soares says three forces are propping up the gray market: confusion among citizens who believe weed is now legal to use, buy and sell; a lack of clarity in the ranks of law enforcement on whats legal and whats not; and a lack of resources and incentives for law enforcement and prosecutors to go after people and companies that either continued their illicit marijuana operations or opened unlicensed dispensaries.

It doesn't surprise me that we're at this point nowit does appear to be the wild, wild west, he says. Part of the blame should rest at the feet of our government.

But enforcement poses a catch-22. When the state passed MRTA, he says you could hear a cheer coming from his office. Pot prohibition in the Albany area mostly affected communities of color, he says, and the point of legalization is to stop prosecuting people and start regulating an industry. He thinks Savinos bill or other legislation aimed at the gray and illicit marijuana markets could be weaponized to launch this war on marijuana on [the same] communities that were targeted for decades. Soares doesnt have a solution, but he thinks the state cannot rationalize arresting operators of unlicensed marijuana businesses while the state supports the licensed industry.

I cannot imagine us engaging in an operation and shutting down [an illegal dispensary], having him in front of a judge and asking that judge to sentence this person while were also being invited to cut a ribbon for the new dispensary thats just a beautiful place, Soares says.

So while New York tries to figure out how to extinguish the blazing gray market, many entrepreneurs see what theyre doing as a necessity to compete against the billionaire- and millionaire-run companies operating in New Yorks medical market that will be the only businesses allowed in the states adult-use market to have vertically integrated operations. J, an entrepreneur who runs Sass, a gray-market gourmet cannabis-infused chocolate business in Brooklyn, says if he were to shut down and wait for a license, his company would be crushed.

Until legalization starts, we need to have our business in place because theres no catching upthe only option is to accelerate, says J. I dont like the idea of being illegal, and we are doing everything we can to enter the legal market.

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New York Lawmakers Take On The Cannabis Gray Market To Protect The State's $4.2 Billion Industry - Forbes